Every American business has been impacted by inflation. Use these strategies to stay ahead financially.
In today’s economy, your business may struggle as costs rise for fuel, labor, and other necessities. However, by being shrewd, you can offset the effects of inflation and ensure your company is well protected.
Moneyball your business
Much like baseball general manager Billy Beane used player statistics to make the Oakland Athletics a winning team on a limited budget, as shown in Michael Lewis’s book Moneyball: The Art of Winning an Unfair Game, look at your business to see where it can be fine-tuned. Evaluate what’s working and what isn’t, and get rid of what isn’t a moneymaker. “If your company sells twenty products and you notice that only five are profitable, you can cut the other fifteen and save,” says Todd Scott, a regional vice president for Ameritas. You can also streamline your business by weeding out costly procedures. For instance, during the COVID-19 pandemic, his agents started using Zoom regularly to connect with clients. “Now that they don’t have to drive, their costs went down,” he explains. “Look at your numbers. I tell my agents they should know how much money they make every time they make a phone call. If you don’t know that, you haven’t Moneyballed your business.”
You may need to reduce your spending to protect your bottom line, and there are several ways you could do this. To hedge against rising prices, consider securing new vendors with lower prices on raw materials and supplies and stock up on essential items to hedge your bets if prices get even higher. You can also trim unnecessary expenditures. Brian Fields, a vice president and financial advisor at Merrill Lynch, suggests reconsidering even small expenses, as they can add up. “One of my pet peeves are FedEx, UPS, or other overnight delivery fees,” he says. “You should review your usage of them and evaluate which ones are necessary and which ones aren’t. If you plan ahead, you could use less-expensive two-day delivery or send it electronically instead. Don’t fall back on what’s easiest, as the costs could accumulate.”
Manage cash flow
Now more than ever, it’s important to keep a close eye on your cash flow. Implement practices to help you get paid faster, such as asking for partial payment upfront and using incentives and, if need be, penalties to encourage customers to pay on time. Examine the due dates of your account payables to avoid paying them before you have to, or ask if you can get a discount for paying early. Alternatively, negotiate with your vendors to extend your payment dates, if possible. Another good idea is to put off arbitrary spending so you can hold onto more of your cash. “You should prioritize your needs and put off the wants until the economy improves and you are in a better situation,” Field says.
Consider your debt
Interest rates have been high, so, if you can, try to pay off some of your debt. You could talk with your lender about reducing interest rates on your loans to potentially lower how much you’ll pay. You could reserve the money you save for unexpected expenses or work with a financial advisor to chart the best financial course for your business.
When costs are high, it’s imperative to utilize your employees effectively. Scott compares staffing your business to filling a school bus. “Does your bus have the right seats?” he asks. “Do you need a sales seat? Do you require an HR seat? Make sure you have the correct seats on the bus, examine your business, and determine whether you have the people you need in the right seats.” His company uses employee-assessment tools from Gallup, such as the CliftonStrengths 34, to determine employees’ strengths and to find which role suits them best. “You might have a person in sales, but it’s not what they like,” he explains. “They may work lots of hours but aren’t productive. If you move them to a new seat, they can be an effective part of the team. You need the right seats and the best people in those seats.”
Productivity is important in lean times so you can increase profits on a tight budget. Smart staffing is one way to do this, but there are other cost-effective methods, too, such as automating processes like scheduling or billing and increasing staff productivity by using incentives. It might seem counterintuitive to reward staff with raises in this economy, but inflation will also impact your employees, and using financial incentives to increase retention can be more cost-effective than training new staff. You could also offer employees remote or hybrid schedules to help them avoid personal costs like commuting or childcare.
Pass costs to consumers
Finally, you could consider pushing some of your extra expenses to your customers. Be sure to check your competition’s prices for similar products and services first, and keep your prices lower than theirs if you can. Be up front with your customers about your reasoning, and inform them in advance so you can avoid losing them. If you are honest, chances are they will understand and reward you with extra customer loyalty, which can propel your business even through turbulent times.
Take action: Analyze your company, and look for ways to cut costs, improve productivity, and streamline your business.